The ConnexPay Story, Part 1

I hate to say, I didn’t wake up one day and have the idea to start ConnexPay. I know, it would have been a far neater story if it was a “Eureka” moment of inspiration, like a bolt of lightning from the sky.

But to understand why I started ConnexPay is to understand the challenges inherent in the travel agency payments process. And those have been years in the making.

Of course, I’m getting ahead of myself — let’s back up a minute.

For two decades, I worked as a senior leader in banking, where I was able to see firsthand how disconnected the payments process could be. You may think of payments as a very unified experience, but in fact, the systems that are needed to create a payment flow are all very separate. At a bank, one unit allows for merchants to accept payments. Another system is used to send payments from one business to another. They act as independent companies even though they’re all under the same roof. And some payments companies don’t even do more than one function. It is because of these disconnects that travel agencies don’t have a seamless solution that fits their unique needs.

And you might say, “Who cares? Why does it matter as long as the separate systems work like they’re supposed to?”

To answer that, I would point to a couple reasons:

Lack of visibility generates more risk—and higher prices

The first is risk. Think of a travel agency that essentially sits in the middle of two transactions. One payment comes to them from the traveler and is processed by the agency’s merchant bank. The agency then must turn around and immediately send a different payment to the travel supplier to secure the booking. This “middleman” process inherently holds risk — so much risk that banks put travel agencies in the same risky category as online gambling and pornography.

This entails something known as “future delivery risk,” which is when something is paid for today, but services aren’t rendered until a later date. Think about it — in between the time someone books a flight or a hotel, anything can happen. The hotel could go out of business. The flight could get canceled. The travel agency itself could fold, as many did in 2020.

The longer that time gap is, the riskier it is for the bank because they are on the hook if the agency isn’t able to provide the refund to the customer. The longer the time gap, the more chances something can go awry (canceled flight, closed hotel) where a chargeback could be filed.

Then there’s also the visibility risk. From the bank’s viewpoint, there is no certainty that the travel agency actually paid the supplier for the service. In some situations, agencies may have terms with their travel suppliers allowing them to pay later. So, the money collected for one traveler’s trip might actually be used to pay for someone else’s trip or for other operating expenses.

The bottom line is that when the money sits with the travel agency, so does the risk. The bank wants to know that when a customer pays for a service, the service will actually be provided to them (and a less likely chance of the customer filing a dispute).

Without true visibility between those who send money and those who receive it, along with delayed delivery, banks find themselves in an information vacuum and must price their merchant processing services accordingly. The end result? Travel agencies can pay up to an extra ½ of a percent on every transaction, which if you’re doing millions (or even thousands) in volume, is quite a lot of money.